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New and Increased Filing Penalties for Businesses

Among the revenue offsetting provisions of HR 3648, the Mortgage
Forgiveness Debt Relief Act of 2007, were increases in penalties on
partnerships and S corporations for failure to timely file returns.
The monthly penalty for failure to file required partnership returns
on time (absent any extension) was increased from $50 per partner to
$85 per partner. The maximum number of months the penalty may be
assessed was increased from five to 12. Likewise, for S corporations,
the act added new IRC § 6699, which imposes a penalty of $85 per month
per shareholder for failure to timely file. The penalties are
effective for returns required to be filed after the law’s enactment
in December 2007.

Relief provisions of the act included most prominently the exclusion
of discharge-of-indebtedness income of up to $2 million received on or
after Jan. 1, 2007, from forgiveness of a mortgage on a taxpayer’s
qualified principal residence.